New reforms to the EU’s emissions trading system are welcome, but the devil will be in the details

August 11, 2015

The EU’s emissions trading system employs a ‘cap and trade’ framework under which a ‘cap’ on the level of greenhouse gas emissions is set, with allowances for emissions becoming tradable between business and other actors. Since the financial crisis, however, a surplus of emission allowances has built up, undermining the effectiveness of the system. Luca Taschini from the ENTRACTE partner institution LSE writes on a recent proposal, approved in the European Parliament on 8 July 2015, to tackle this problem by creating a so called ‘Market Stability Reserve’. He argues that while this should be seen as a positive development, its impact will depend heavily on the details of the reform that are eventually agreed between national governments.